Islamic Banking: Principles, Practices and Performance

Modern banking operations are primarily interest-centric, receiving money and lending it on interest. However, this is prohibited in Islam. Since interest permeates all the operations of the banking system, this system can be considered repugnant to Muslims. Islamic banking - as an alternative to the Western capitalist banking system - prohibits any kind of speculation, interest, and immoral investments (e.g. casinos). Yet, Islamic banks have to make a profit. They do this by buying assets on behalf of the customer, who has to repay the loan and a fee for using the asset. When the loan is paid off, the asset's ownership is transferred to the borrower. The advantage of this arrangement is that the bank shares not only the profit, but the risk as well. For this reason, it gets the opportunity to have a close look at the potential borrowers. This book deals with conceptual, theoretical, and empirical framework of the Islamic banking system. It also provides a performance review of Islamic banks in a global perspective. More importantly, it explains and examines the practices of Islamic banking in India, focusing on issues and constraints.